[Federal Register Volume 64, Number 206 (Tuesday, October 26, 1999)]
[Notices]
[Pages 57685-57687]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-27888]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-42028; File No. SR-Phlx-99-31]
Self-Regulatory Organizations; Notice of Filing and Order
Granting Accelerated Approval to a Proposed Rule Change by the
Philadelphia Stock Exchange, Inc. To Require Exchange Members and
Member Organizations to Provide Reports and Other Information Relating
to Year 2000
October 18, 1999.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on August 25, 1999, the Philadelphia Stock Exchange, Inc. (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Phlx. On October 1,
1999, the Phlx filed Amendment No. 1 to the proposal with the
Commission.\3\ The Commission is publishing this notice and order to
solicit comments on the proposed rule change from interested persons
and to grant accelerated approval to the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Letter from Richard S. Rudolph, Counsel, Phlx, to Heidi E.
Pilpel, Special Counsel, Division of Market Regulation, Commission,
dated October 1, 1999 (Amendment No. 1). The substance of Amendments
No. 1 is incorporated into the notice and order.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
The Phlx proposes to amend Exchange Rule 650, Mandatory
Participation in Year 2000 Testing, to require members and member
organizations to submit all reports, documents or other information
relating to Year 2000 readiness or to the century date change as the
Exchange may request. Currently, the rule mandates that members and
member organizations are to participate in Year 2000 related testing
and are to provide to the Exchange reports related to such testing.
The new clause in Phlx Rule 650 would also require members and
member organizations to provide all reports and other documents
relating to the Year 2000 century date change as requested by the
Exchange. It would thus permit the Exchange to sanction, where
appropriate, members and member organizations who do not respond
reasonably promptly to
[[Page 57686]]
requests for reports, such as, for example, Year 2000 Readiness
Disclosures, updates on the member or member organization's efforts to
become Year 2000 ready, and any other related information requested by
the Exchange. Violations of Phlx Rule 650 would be referred to the
Exchange's Business Conduct Committee. Below is the text of the
proposed rule change. Proposed new language is in italics.
* * * * *
Mandatory Participation in Year 2000 Testing
Rule 650. Each member and member organization shall participate in
testing of computer and computer related systems designed to prepare
for the Year 2000 century date change in a manner and frequency
prescribed by the Exchange, and shall provide to the Exchange reports
related to such testing, and any such reports, documents, or other
information relating to Year 2000 readiness or to Year 2000 century
date change as the Exchange may require, in a reasonably prompt fashion
as requested by the Exchange. Any member or member organization which
is subject to this rule and determined by the Exchange to be in
violation of this rule may be subject to disciplinary action pursuant
to the Exchange's rules.
Commentary
01. The Exchange may exempt a member or member firm from this
requirement if that member cannot be accommodated in the testing
schedule by the organization conducting the test or if the member does
not employ computers in its business or for other good reasons
determined by the Exchange.
* * * * *
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Phlx included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Phlx has prepared summaries, set forth in Sections
A, B, and C below, of the most significant aspects of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to add a clause to Exchange Rule 650 which
would require Exchange members and member firms to submit reports,
documents or other information relating to the Year 2000 readiness or
to the Year 2000 century date change as the Exchange may request.
Currently, Exchange Rule 650 mandates that members and member firms
participate in testing related to Year 2000 issues, and to submit
reports relating to such testing to the Exchange as requested.\4\ The
new clause in Phlx Rule 650 would broaden the rule to require Exchange
members and member organizations to submit all Year 2000 related
reports, documents or other information relating to Year 2000 readiness
or to the Year 2000 century date change requested by the Exchange,
rather than those relating to testing only. The proposed rule is
intended to require members and member organizations to provide to the
Exchange, upon request, reports, documents, contingency plans, and
other information and representations regarding Year 2000 readiness,
including, but not limited to, information similar to that required by
Commission temporary-rules 15b7-3T and 17a-9T under the Act, which were
recently adopted by the Commission.\5\
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\4\ See Securities Exchange Act Release No. 40870 (December 31,
1998), 64 FR 1263 (January 8, 1999), File SR-Phlx-99-53 (Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule
Change and Amendment No. 1).
\5\ See Securities Exchange Act Release No. 41661 (July 27,
1999), 64 FR 42012 (August 3, 1999), File S7-8-99.
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The proposal is not intended to require the Exchange to request
certain reports and information relating to Year 2000 readiness from
members and member organizations. Rather, it is intended as a measure
through which the Exchange may require the submission of certain
reports and information, and as an enforcement mechanism in the event
that members and member organizations fail to comply with such a
request.
The proposed rule change would allow the Exchange to ascertain the
readiness of its members and member organizations for the Year 2000
century date change, and to determine what measures and contingency
plans, policies and procedures have been put in place by those members
and member organizations. Such members and member organizations who
fail to respond to Exchange requests for Year 2000 reports and
documents would be subject to disciplinary action by the Exchange.\6\
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\6\ Phlx Rule 650 specifically states that any member or member
organization determined by the Exchange to be in violation of the
rule may be subject to disciplinary action pursuant to the
Exchange's rules. While disciplinary action is implied as a
consequence of any Exchange rule violation, the rule includes this
clause in order to remain consistent with similar rules promulgated
by other exchanges, on which Exchange Rule 650 is based.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Section 6(b)(5) \7\ of the Act in that it is designed to perfect the
mechanisms of a free and open market and a national market system, and
to protect investors and the public interest, and to reduce the risks
of the Year 2000 century date change posed to investors and the
securities markets, by requiring members and member firms to report to
the Exchange their Year 2000 readiness, contingency plans, policies and
procedures, and other related reports and documents requested by the
Exchange.
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\7\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Phlx does not believe that the proposed rule change will impose
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Phlx has neither solicited nor received written comments on the
proposed rule change.
III. Commission's Findings and Order Granting Accelerated Approval
of Proposed Rule Change
The Commission finds that the proposed rule change is consistent
with the requirements of the Act and the rules and regulations
thereunder applicable to a national securities exchange, and, in
particular, with the requirements of Sections 6(b)(1) \8\ and 6(b)(5)
\9\ of the Act. Section 6(b)(1) of the Act requires that an exchange be
organized and have capacity to enforce compliance by its members with
the provisions of Title 15 U.S.C., the rules and regulations
thereunder, and the rules of the Exchange.\10\ Section 6(b)(5) of the
Act requires, among other things,
[[Page 57687]]
that the rules of the exchange be designed to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest.\11\
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\8\ 15 U.S.C. 78f(b)(1).
\9\ 15 U.S.C. 78f(b)(5).
\10\ 15 U.S.C. 78f(b)(1).
\11\ In approving the proposal, the Commission has considered
its impact on efficiency, competition, and capital formation. 15
U.S.C. 78c(f).
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Securities market participants will soon face a critical test of
their automated systems with the upcoming Year 2000; and the Commission
believes that the support of the self-regulatory organizations is
necessary to minimize the risks resulting from the century date change.
Currently, the Phlx is entitled to receive, upon request, only the Year
2000 testing reports of its members and member organizations. Under the
Exchange's proposal, the Phlx has authority to require members and
member organizations to submit additional information regarding their
Year 2000 readiness. The Commission believes that this information will
assist the Phlx in evaluating its members' Year 2000 readiness. With
more complete information, the Commission believes that the Phlx will
be better able to monitor its members and member organizations to
ensure their compliance with federal securities laws and the Exchange's
rules. Therefore, the Commission finds that the proposed rule change is
consistent with Section 6(b)(1) of the Act.
The Commission also believes that the Phlx's proposed rule change
should help reduce the risks posed to investors and the securities
markets by broker-dealers that have not adequately prepared their
computer systems for the century date change. The Commission finds that
the Phlx's proposed rule change should facilitate transactions in
securities and protect investors and the public interest and is
therefore consistent with Section 6(b)(5) of the Act.
The Commission finds good cause for approving the proposal prior to
the thirtieth day after the date of publication of notice thereof in
the Federal Register. Accelerated approval will permit the Exchange to
obtain reports, documents, and other information related to the Year
2000 immediately, allowing the maximum amount of time possible to
identify, assess, and remediate Year 2000 problems. Accordingly, the
Commission believes that good cause exists, consistent with Section
6(b)(5) and Section 19(b)(2) of the Act, to grant accelerated approval
to the proposal.\12\
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\12\ 15 U.S.C. 78f(b)(5) and 78s(b)(2).
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of such filing will also be
available for inspection and copying at the principal office of the
Phlx. All submissions should refer to File No. SR-Phlx-99-31 and should
be submitted by [insert date 21 days from date of publication].
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\13\ that the proposed rule change (SR-Phlx-99-31) is approved on
an accelerated basis.
\13\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\14\
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\14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 99-27888 Filed 10-25-99; 8:45 am]
BILLING CODE 8010-01-M
